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Did Bill Clinton's drive against mortgage loan discrimination partially set the stage for the housing crisis?

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Vic

Elite Member
Jun 12, 2001
47,758
7,996
126
Originally posted by: Atreus21
My theory is that the Fed upping the interest rate over the past few years led to ARM holder's defaulting on their loans, which contributed greatly to the crisis.
Your theory is wrong. The Fed does not control mortgage rates.

On topic: Clinton signed 4 major pieces of housing/banking legislation during his administration. They were:
- Major amendments to the Community Reinvestment Act (CRA 1977, subject of the OP) which allowed for the securitization of subprime mortgages starting in 1995.
- The Homeownership and Equity Proctection Act (HOEPA) of 1995, which amended TILA Reg Z to broaden the definition of high-cost loans, effectively establishing a usury limit of rates and fees for mortgages (defined as an APR 10% above the Prime and/or total fees exceeding 8 points). The Bush admin later lowered those triggers to 8% and/or 5 points, respectively.
- The Homeowner's Protection Act of 1998 (aka PMI Act), which reduced the cost of mortgage insurance and established set cancellation points/dates.
- The Gramm-Leach-Bliley Act of 1999 (GLBA), which de-regulated the banking and financial services industries to an extent that had not been seen since before the Great Depression.
 

FuzzyBee

Diamond Member
Jan 22, 2000
5,172
1
76
Originally posted by: Engineer


We looked at a forclosed house a few months ago. Same thing. All appliances removed, vent cover removed, light switches removed, all light fixtures removed, basement flooded (on purpose I do not know). Turned a beautiful house into a dump. Was too much work, even for the reduced price, to make it worth while.

Also, my opinion that the baleouts aren't so much for the people losing their houses as it is for the the banks that have fucked up. Money chasing money....not the people.
When my wife and I were house-hunitng a year ago, we went into a foreclosed house where the foreclosed-upon had removed the toilets and the kitchen floor tile.

 

Mxylplyx

Diamond Member
Mar 21, 2007
4,197
100
106
Originally posted by: XMan
At what point do we blame it on the people who bought more house than they could afford? Or stuck with an ARM knowing it was going to index if they didn't re-fi. Of course this assumes they were paying enough to keep equity in their house . . . and not just interest only.

Crazy, I know, I know. Personal responibility? Pssh. Three-quarters of this country is financially ignorant.
While I agree with your sentiment, theres a little more to it. People with poor credit scores should be able to by a home just like anybody else, only they should pay a hefty price for it through high rates and high down payments in order to mitigate the risk to the lender. It is up to a buyer to decide how much home he can afford, and it is equally up to the investors to decide what loans they will extend to the buyers based on their credit worthiness. Investors fucked up when they decided to extend loans to these people at the terms that they did. Lending appears to discriminate against minorities, particularly blacks, because blacks are generally poorer, and less responsible/experienced with managing money, thus they have lower credit scores. I would never loan money to such a group unless I was getting a very high rate, or the government insured the loan.
 

Atreus21

Lifer
Aug 21, 2007
12,017
571
126
Originally posted by: Vic
Originally posted by: Atreus21
My theory is that the Fed upping the interest rate over the past few years led to ARM holder's defaulting on their loans, which contributed greatly to the crisis.
Your theory is wrong. The Fed does not control mortgage rates.

On topic: Clinton signed 4 major pieces of housing/banking legislation during his administration. They were:
- Major amendments to the Community Reinvestment Act (CRA 1977, subject of the OP) which allowed for the securitization of subprime mortgages starting in 1995.
- The Homeownership and Equity Proctection Act (HOEPA) of 1995, which amended TILA Reg Z to broaden the definition of high-cost loans, effectively establishing a usury limit of rates and fees for mortgages (defined as an APR 10% above the Prime and/or total fees exceeding 8 points). The Bush admin later lowered those triggers to 8% and/or 5 points, respectively.
- The Homeowner's Protection Act of 1998 (aka PMI Act), which reduced the cost of mortgage insurance and established set cancellation points/dates.
- The Gramm-Leach-Bliley Act of 1999 (GLBA), which de-regulated the banking and financial services industries to an extent that had not been seen since before the Great Depression.
If the Fed controls interest rates, then the Fed controls mortgage rates. Pretty simple.
 

Vic

Elite Member
Jun 12, 2001
47,758
7,996
126
Originally posted by: Atreus21
If the Fed controls interest rates, then the Fed controls mortgage rates. Pretty simple.
Quoted for ignorance.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Atreus21
Originally posted by: Vic
Originally posted by: Atreus21
My theory is that the Fed upping the interest rate over the past few years led to ARM holder's defaulting on their loans, which contributed greatly to the crisis.
Your theory is wrong. The Fed does not control mortgage rates.

On topic: Clinton signed 4 major pieces of housing/banking legislation during his administration. They were:
- Major amendments to the Community Reinvestment Act (CRA 1977, subject of the OP) which allowed for the securitization of subprime mortgages starting in 1995.
- The Homeownership and Equity Proctection Act (HOEPA) of 1995, which amended TILA Reg Z to broaden the definition of high-cost loans, effectively establishing a usury limit of rates and fees for mortgages (defined as an APR 10% above the Prime and/or total fees exceeding 8 points). The Bush admin later lowered those triggers to 8% and/or 5 points, respectively.
- The Homeowner's Protection Act of 1998 (aka PMI Act), which reduced the cost of mortgage insurance and established set cancellation points/dates.
- The Gramm-Leach-Bliley Act of 1999 (GLBA), which de-regulated the banking and financial services industries to an extent that had not been seen since before the Great Depression.
If the Fed controls interest rates, then the Fed controls mortgage rates. Pretty simple.
LOL, it must be so nice to live in a stick figure and crayon world.


Lets not forget this little gem also.

http://en.wikipedia.org/wiki/T...yer_Relief_Act_of_1997

which created a nice tax-arbitrage.
 

Engineer

Elite Member
Oct 9, 1999
39,255
698
126
Originally posted by: Vic
Originally posted by: Atreus21
If the Fed controls interest rates, then the Fed controls mortgage rates. Pretty simple.
Quoted for ignorance.
Pardon my ignorance, but I thought (I may be wrong and usually am :p) that the regular mortgage rates were set by bonds (10 year, 30 year, etc) and that adjustable (ARM) were more set by short term rates, no? (serious question and pardon my ignorance in advance).
 

Vic

Elite Member
Jun 12, 2001
47,758
7,996
126
Originally posted by: Engineer
Originally posted by: Vic
Originally posted by: Atreus21
If the Fed controls interest rates, then the Fed controls mortgage rates. Pretty simple.
Quoted for ignorance.
Pardon my ignorance, but I thought (I may be wrong and usually am :p) that the regular mortgage rates were set by bonds (10 year, 30 year, etc) and that adjustable (ARM) were more set by short term rates, no? (serious question and pardon my ignorance in advance).
The Fed doesn't control the LIBOR, T-bills, MTA, and COFI, which is how most adjustable 1st mortgages are calculated. Most HELOCs (2nd mtgs) are governed by the Prime, but that's about it.
 

Engineer

Elite Member
Oct 9, 1999
39,255
698
126
Originally posted by: Vic
Originally posted by: Engineer
Originally posted by: Vic
Originally posted by: Atreus21
If the Fed controls interest rates, then the Fed controls mortgage rates. Pretty simple.
Quoted for ignorance.
Pardon my ignorance, but I thought (I may be wrong and usually am :p) that the regular mortgage rates were set by bonds (10 year, 30 year, etc) and that adjustable (ARM) were more set by short term rates, no? (serious question and pardon my ignorance in advance).
The Fed doesn't control the LIBOR, T-bills, MTA, and COFI, which is how most adjustable 1st mortgages are calculated. Most HELOCs (2nd mtgs) are governed by the Prime, but that's about it.
Ah...thanks.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Engineer
Originally posted by: Vic
Originally posted by: Engineer
Originally posted by: Vic
Originally posted by: Atreus21
If the Fed controls interest rates, then the Fed controls mortgage rates. Pretty simple.
Quoted for ignorance.
Pardon my ignorance, but I thought (I may be wrong and usually am :p) that the regular mortgage rates were set by bonds (10 year, 30 year, etc) and that adjustable (ARM) were more set by short term rates, no? (serious question and pardon my ignorance in advance).
The Fed doesn't control the LIBOR, T-bills, MTA, and COFI, which is how most adjustable 1st mortgages are calculated. Most HELOCs (2nd mtgs) are governed by the Prime, but that's about it.
Ah...thanks.
Rates are set by capital flows. The more capital that floods into the market, the lower rates go. The Fed can only control what they charge banks to borrow, but if those banks don't need to borrow money, then it really doesn't matter. Sure, it indirectly translates into benchmark rates, but only for short-term borrowings.

For example, the Fed has dropped rates tremendously in the last year, but 30-year mortgage rates have barely moved. WHy? Because people who provide capital aren't lending to those who demand capital. Borrowing rates are high, not because the Fed rates are high, but because the supply of capital is small and providers demand high prices to let go of their capital.

Thus, long-term rates and economic movements these days are far outside complete control of the Fed and are far more in the hands of the mob.
 

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